How the 1991 crisis got India to rethink its economic approach.

By early 1991, India’s reserves were nearly gone.

The government took a desperate step—it sent 67,000Kg of gold abroad to secure a loan from the IMF.

This was a last-ditch effort to avoid default, but it only bought a little time. But soon, the govt collapsed again, leading to a new election.

In June 1991, P.V. Narasimha Rao became Prime Minister, and he chose Manmohan Singh as his Finance Minister— and things changed.

Rao and Singh quickly implemented reforms: they removed restrictive licensing, welcomed foreign investment, and eased machinery imports.

The 1991 crisis forced India to rethink its economic approach—it highlighted the risks of heavy borrowing and too much government control. But it also showed that when things get tough, bold decisions can turn a bad situation into an opportunity.

In this episode of the NEON Show, Rajrishi Singhal, a senior journalist, banker, shares his deep insights into India's economic reforms and financial sector. Singhal offers a nuanced perspective on why India's economic progress hasn't met expectations, touching on issues from private sector investment to the success of reforms during coalition governments.
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Timestamp

00:00 - Introduction to the podcast and guest, Rajrishi Singhal.
01:23 - Corruption in India and its impact on the economy
05:30 - how demonetization was not to take out corruption
07:06 - Rajiv Gandhi was the original ‘Accidental Prime Minister’
12:29 - What pushed us into the 1991 crisis
14:45 - Raids on reliance industries
18:57 - How India almost went bankrupt
21:45 - Complexities of India’s banking system
19:15 - What are regional rural banks (RRBs)
25:26 - Corruption's impact on investments.
28:41 - Why doesn't India have more new banks
32:00 - Why private sector investments in India have been limited
34:25 - Success of reforms during coalition governments
40:26 - Foreign investors' concerns about sudden policy changes in India
41:26 - Impact of demonetization on the Indian economy
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